Industry watchers were puzzled when PSA/Peugeot-Citroen CEO Philippe Varin said the automaker will move its Peugeot brand upscale. How will that work when Citroen already has its upmarket DS subbrand, they asked?

PSA's product strategy can be summarized in three words for each brand and subbrand, Varin told analysts on Wednesday after announcing the automaker's dire 2012 financial results.

Peugeot's marketing will revolve around the words exigence, allure and emotion, where exigence stands for perceived quality and reliability; allure for elegant, dynamic designs that stand out from the crowd; and emotion for an innovative driving experience and driving pleasure.

Citroen's mainstream cars will be marketed under the words human, simple and smart. Human exemplifies fuel-efficiency and environmentally friendly cars; simple represents easy-to-use, less sophisticated vehicles and a purist design; smart stands for practical features and an attractive cost of ownership. The DS range stands for innovative, luxury and "from Paris."

Skeptical analysts asked whether moving upscale is feasible when car buyers in Europe are being squeezed by their governments' austerity measures.

Varin said the strategy is already paying off. He did not give any details but the company's 2012 annual report says that upscale vehicles now account for 18 percent of PSA total volume, which is double what it was three years ago.

Varin admitted that the upscale strategy will take years to bear fruit but will PSA be around to see the benefit? On Wednesday, the company posted a record 5 billion euro ($6.73 billion) net loss for 2012 and the automaker is said to be losing 7 million euros a day. Bernstein Research senior analyst Max Warburton said the company's position is precarious in a brutal European car market. "Not all the participants in the market are likely to survive this war," he said in a note to clients.